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Subject: The cost of aging Date: 1/7/2007 3:27 PM
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Recently, a local assisted-care facility was bought out by a company, which intends to turn it into an Alzheimer's care facility. The Alzheimer's patients require additional security, so the facility was shut down, for modification.

The assisted-care patients, many of whom were on Medicaid, were forced to relocate.

The local newspaper prints a weekly column, by a nonprofit-affiliated professional aging advocate, Mark Harvey. Mr. Harvey deplored the relocations. He said that the root cause, of the displacement, was that Medicaid reimbursements are too low. Since many of the displaced Medicaid patients might rely on expensive emergency care, Mr. Harvey said that the common-sense approach would be to increase Medicaid reimbursements.

I wrote the following letter, to the editor of the newspaper, which was printed, last week.


I would like to join Mark Harvey, in his common-sense "plea for sanity." However, my conclusion is different from his.

Mr. Harvey asks for an increase in Medicaid reimbursements, so doctors and nursing homes will accept Medicaid patients. Common sense tells us that Medicare and Medicaid reimbursements come from taxpayers. Any increase in reimbursements will be paid for by increased taxes, on working people and retirees. Taxpayers will push back, when more reimbursement is requested.

An increase of entitlements for today's elderly will also apply to the 77 million-strong "baby boom" generation, whose leading edge is just reaching age 60. Medicare's trustees estimate that Medicare will be bankrupt, by 2019, even without increased reimbursements. Additional reimbursements would place additional strains on Medicare and Medicaid. The entire system may break down.

Common sense tells us that people are living longer today, so everyone should save more, for our own future care needs. However, the U.S. savings rate has dropped to below zero. Unlike past decades, the American population is now (on average) spending more than they earn. Many are spending on current consumption, not saving for future needs. In addition to today's elderly, will Medicaid be expected to pay for the long-term care of the 77 million baby boomers? Should society be responsible for those who didn't save for their retirement, when they were working?

There will be more cases of Medicaid displacements, because there will be more assisted living businesses that find it more profitable to provide services to full-pay customers, than to Medicaid. More Medicaid patients will be displaced. This should be a wakeup call. If you want to avoid being a Medicaid "displacee," save enough to avoid becoming a Medicaid patient.


Since the editor wanted more data, I followed up, with background information:


The Comptroller of the Currency of the U.S., David M. Walker, describes the retirement of the baby boomers as a "demographic tsunami." According to Mr. Walker (an honest, straight-talking statesman, obviously telling the truth to power), "... every American would have to give up around 90 percent of his or her net worth just to cover the government's current liabilities and unfunded promises for future spending." Needless to say, if the government were to add to entitlement spending (such as increasing Medicare and Medicaid reimbursement), the unfunded liabilities would be even higher.

http://www.gao.gov/cghome/2005/engel10112005/englelecture928.txt

In this speech, Mr. Walker points out, "The fact is that many Americans are saving next to nothing. The U.S saving rate as a percentage of disposable personal income has fallen to 1.4 percent." This was accurate, in 2005. when Mr. Walker wrote his speech.

Unfortunately, the situation has deteriorated. According to the Bureau of Economic Analysis, which is a branch of the U.S. Department of Commerce, personal spending exceeded personal income (a negative savings rate) in 2005. The savings rate has been negative, throughout every month of 2006.
http://bea.gov/bea/dn/home/personalincome.htm

Now, these are government bureaucrats, appointed and paid by a Republican government. They are not conspiracy theorists. They are frightened by the plain numbers...and who can blame them?

Mark Harvey is a very nice man, and he certainly means well. He feels compassion, for those who are being shoved from one side to the other of the "safety net of last resort." However, he is not thinking the problem through. He says, "The root of the problem is the idiotically low Medicaid reimbursement rates."

In this, he is wrong. The root of the problem is that people have not saved enough to take care of their care, throughout their looonnnnggg lives. In the old days, people died much younger. If they lived, their families took care of them...or they went to the poorhouse.

Medicaid is a relatively new program. Medicaid was created on July 30, 1965, at the height of President Lyndon B. Johnson's War on Poverty. Medicaid covers a wider range of health care services than Medicare. Of special importance is that Medicare covers long-term health care, while Medicare does not. Since the average cost of a nursing home is $55,000 per year, extending Medicaid to more recipients, or increasing Medicaid reimbursements to nursing homes, would have an enormous impact on outlays.

Medicaid is a joint federal-state program that provides health insurance coverage to low-income children, seniors and people with disabilities. This has two impacts: increases in costs will increase state burdens. Also, allocation of Medicaid money to seniors will take it away from other beneficiaries, such as children. Would you approve of reducing children's medical care, to increase the reimbursement for nursing homes?

On the subject of elder care, take a look at this story, from New York Times, about families spending their own savings, on their elder parents.
http://www.nytimes.com/2006/12/30/us/30support.html?pagewanted=1&ei=5087%0A&em&en=efd4f7af08316ba4&ex=1167627600

The displacement of a few Medicaid patients, in our town, are just the leading edge of an enormous, decades-long crisis. It's already started, but the baby boomers haven't even been added to the dependent population. The current elderly population is already a tremendous burden, draining baby boomer resources. How will the baby boomers pay for themselves? And, how will those of us who don't have children cope?

Like Mr. Harvey, I feel sorry for the displaced Medicaid residents. However, their plight is symptomatic of a much larger problem.


If you read the data, in the thread on American assets, you will see that the problem will blow up, within the next 10-20 years. There is no way that the majority of Americans can pay for their own assisted living or nursing home care.

As I said to DH, this morning, I feel like a hurricane forecaster, who sees a serious storm brewing, off the coast of Africa. How can we batten down the hatches, for the inevitable storm? DH answered that the Federal Reserve would stand on the beach, waving a blanket, to try to push the storm back.

This is not to say that I think that America is allocating its assets properly. However, reallocation is more of a political question. The economic question is: given the demographic tsunami, how should we cope?

Wendy


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